What happens if you exceed the — pension annual allowance?
The annual allowance charge, when your pension scheme can pay the bill, how carry forward can remove it entirely, and what you must report on your tax return.
- ▸Contributions above the £60,000 annual allowance trigger an income tax charge on the excess — calculated at your marginal rate.
- ▸If the excess exceeds £2,000 and your total pension input exceeds £60,000, you can ask your pension scheme to pay the charge directly (mandatory scheme pays), reducing your pension pot rather than your bank account.
- ▸Check unused allowance from the previous three tax years first — carry forward can eliminate or reduce the charge before it arises.
How the annual allowance charge works
The annual allowance limits the total pension input that can receive tax relief in any one tax year. For 2025/26 the standard figure is £60,000. That cap covers contributions from all sources combined: employer contributions, employee contributions, and any salary sacrifice amounts. For defined benefit schemes, pension input is measured using a separate formula rather than cash contributions.
When total pension input in a tax year exceeds the annual allowance, the excess is subject to the annual allowance charge. This is an income tax charge — not a separate penalty. It is added to your taxable income for the year and taxed at your marginal rate. If £10,000 of contributions exceeded the allowance and you are a 40% taxpayer, the charge is £4,000. If you are an additional-rate taxpayer, the charge is £4,500 on the same excess.
The charge effectively claws back the tax relief on any contributions above the threshold. It does not make those contributions invalid — the money sits in the pension — it simply removes the tax advantage on the excess portion.
The charge applies to the tax year in which the excess occurs. Because pension input periods now align with the tax year (6 April to 5 April), the relevant year is straightforward to identify.
Before calculating any charge, it is worth checking whether unused allowance from prior years can be carried forward to absorb the excess. That step is covered below.
Scheme pays: when your pension scheme pays the bill
Paying an annual allowance charge out of pocket can be difficult, particularly where the excess arises from a large defined benefit accrual spike rather than a cash contribution. HMRC's scheme pays mechanism allows individuals to instruct their pension scheme to pay the charge on their behalf. The scheme then reduces the member's pension entitlement to recover the cost.
There are two forms of scheme pays: mandatory and voluntary.
Mandatory scheme pays must be offered by the pension scheme when both of the following conditions are met:
- The annual allowance charge is more than £2,000, and
- The individual's total pension input amount exceeds £60,000 (the standard annual allowance, not any lower tapered figure).
Both conditions must apply simultaneously. If the excess arises solely because a tapered annual allowance brings the limit below £60,000 — say, to £40,000 — but total pension input is less than £60,000, mandatory scheme pays is not available and the scheme has discretion over whether to offer voluntary scheme pays.
Voluntary scheme pays can be offered by schemes at their own discretion for charges that fall outside the mandatory criteria. Whether this is available depends entirely on the scheme's own rules.
To use scheme pays, an election must be submitted to the scheme before 31 July of the year following the relevant tax year — so for a 2025/26 excess, the deadline is 31 July 2027.
Carry forward as a defence
The most efficient way to avoid the annual allowance charge is to check whether carry forward eliminates or reduces the excess before it occurs. Carry forward allows unused annual allowance from the three previous tax years to be brought into the current year.
For 2025/26, the three years available are 2022/23, 2023/24, and 2024/25. If the annual allowance was not fully used in any of those years, the shortfall can be added to the current year's limit. A member who used only £30,000 of their allowance in each of those three years could carry forward £30,000 × 3 = £90,000, giving a 2025/26 ceiling of £150,000 before any charge arises.
The rules require that the current year's allowance is exhausted first, and that carry forward is applied oldest year first. Full details — including the scheme membership requirement — are in our carry forward guide.
The annual allowance checker calculates your pension input against the standard and tapered allowances, and the carry forward calculator shows how much unused allowance is available from prior years.
Self Assessment: reporting the charge
The annual allowance charge is not collected automatically through PAYE. It must be reported on a Self Assessment tax return for the relevant tax year. If you do not normally complete a tax return, you will need to register for Self Assessment and file one for the year in which the excess occurred.
On the return, you enter the total pension input amount, the annual allowance (including any carry forward used), and the resulting charge. If you are using scheme pays, you also declare the amount the scheme is paying on your behalf — this reduces the cash liability on your return but is still disclosed.
HMRC can open an enquiry into pension inputs and contributions, so the figures should match what the pension provider reports to HMRC via RTI and pension scheme returns.
Late filing and late payment penalties apply in the usual way. If you have exceeded the annual allowance and have not yet filed a return for that year, the relevant HMRC penalties guidance applies regardless of whether the breach was intentional.
This is factual information, not financial advice. If you're unsure what's right for your situation, speak to an FCA-regulated financial adviser.